David Crowe delivers State of the Economy address at PDIS

Colorado Springs — A good portion of the ProDealer Industry Summit crowd stuck around until Friday morning to hear David Crowe's thoughts on the broader economic picture for the industry.

Crowe — the chief economist and senior VP of the National Association of Home Builders (NAHB) — explained why this recession was different than all the past ones.

"If you've grown up in the housing industry, you know the phrase 'housing leads us out of a recession,'" he said. "That didn't happen this time, and the main reason this didn't happen was because housing was a big part of the reason behind the collapse, and there were still a lot of vacant houses and people out of work. Now, the housing industry is dependent on the rest of the economy."

Crowe emphasized employment's role as the real key to the recovery: the good news, he said, is that we're now employing more people than ever before. Currently, there are 142 million people working in the U.S., up from the pre-recession peak of 138 million. However, that number is still below trend growth, and a low labor participation rate undermines an encouraging national unemployment rate. What's more, a lot of the jobs created in recent years aren't necessarily high in quality, and a multitude of low-paying service jobs is employing people who are more likely to be renters.

Additionally, Crowe demonstrated that employment is roughly correlated to single-family permit change, underscoring the relationship between employment and housing.

Here are some of the other factors Crowe thinks are currently affecting the housing market:

Young people are delaying everything, as many are accustomed to hearing. It's also no secret that there's a strong correlation between marriage and homeownership.

Though consumers seem to be hesitant about housing, the same is not true for other big purchases. Automobiles and furniture are doing extremely well, indicating "a willingness to spend money on things you could postpone." This checks out with consumer confidence, which is nearing its pre-recession peak. "There's no good reason why we've had this muddled feeling, why people still feel like there's this cloud ahead of them," said Crowe.

Homeowner equity is increasing thanks to rising home prices: $12 trillion, and continuing to rise. At the same time, it's also contributing to a class of people who have no equity, so they can't sell or move forward.

New home sales are on the up and up. There was a stronger rise in the number of new home sales in 2015 versus 2013: 25% verus 4%. At the same time, there are a lot of existing home owners who are not ready to sell or buy, and that keeps the market from moving, because demand in the new home market is mostly dependent on existing home owners.

Concerns among builders have shifted dramatically between 2011 and 2014. The biggest concern is currently regulation of banking institutions, though that's dropped from 77% to 62%. Builders are much more worried about cost/availability of labor (from 13% to 61%) and cost/availability of development lots (21% to 55%). Also of concern is building material prices (from 33% to 58%). Concern over the employment and economic situation has dropped from 79% to 51%.

Real GDP growth has slowed in 2015, but is gearing up for a rebound in '16 or '17: that's 2.4% in 2014 and 2.6% in 2015, compared to 3.0% and 2.7% projected for 2016 and 2017, respectively. "Part of the reason behind the slow growth is slow growth — and irregular growth," said Crowe. Meaning if the economy isn't growing, employers aren't hiring as many people, which just compounds the effect.

Mortgage rates are almost definitely expected to rise over the near-term: from 4.2% and 3.9% in 2014 and 2015 to 4.5% and 5.5% in 2016 and 2017, respectively.

Builder sentiment and new home sales have proven to correlate in the past, with sentiment being reasonably predictive of sales. This indicates that we should continue to enjoy good home sales.

Crowe's prediction for starts: this year, we'll likely end up at 719,000 single-family starts, then 914,000 in 2016 and 1,140,000 in 2017. That's still far below "normal market" from 2000-2003, which was 1,343,000 single-family starts.

The U.S. can expect more of a piecemeal recovery, with some states (like Texas and North Dakota) already back to their norm, and other states (like those with manufacturing economies in the Midwest) having a much longer road to travel back to health.

On economists: "We're pretty much just like accountants, but without the personality," said Crowe.

Lumber is sexy, and other industry ideas

Colorado Springs — One of the more unskippable moments of the ProDealer Industry Summit occurred during the CEO Panel Discussion on Labor Challenges Facing the LBM Industry.

Concerns over changing healthcare regulations and a shortage of young people in the LBM labor force were two major cornerstones of a wide range of concerns troubling lumber dealers today. Fortunately, the diverse panel wasn't short on smart things to say. Here are some of the more memorable quotes from the discussion.

On dealing with compliance checkups from the Department of Labor and other government bodies: "Document everything. I make sure I have every piece of paper. Nine times out of 10, when I bring out my stack of documents, they don't even look at it. They're just impressed that I have it." — Linda Nussbaum, CFO of Kleet Lumber

On the acquisition process: "One of the first things we look at is job titles and salary ranges to make sure they meet the duties test. We make the changes right out of the gate, and one of the most common things we see is inside salespeople listed as non-exempt." — Wendy Whiteash, VP culture at US LBM

On why hourly pay isn't always the best approach: "You want the employee to take ownership, but then you're sending the message that, 'Well, here's how we value your time.' " — Steve Swinney, CEO of Kodiak Building Partners

On onboarding younger employees: "For a lot of us in this industry, [training is] totally on the job. But the difficulty or difference would be if I go back 20 years or more, we didn't support that young person coming in. Some of them were shamed into learning the business and ridiculed when they didn't know what they were talking about." — Brian McCoy, President of McCoy's Building Supply

On why it makes sense to engage new hires with training that focuses on real-life problems: "The things that you read that millennials want — they want constant communication, they want feedback, they want to be hands on and involved in projects. Those are not bad things; we just need to know how to channel that in the right way. We've offered training to everyone so they can go back into their organizations and kill bottlenecks and give them the tools to fix it." — Wendy Whiteash

On perception: "It's a very dynamic and complex business. When I started eight or nine years ago, I didn't realize how complex it was. Another thing about millennials is they really want to be challenged. So what a great environment to bring them into — they should love it. It's project-based, working on teams, solving problems. Those are things that should be really attractive to that younger workforce. But from the outside looking in, it looks like we're just throwing some wood on a truck and sending it out to a job site." — Steve Swinney

On self-fulfilling prophecies: "We have to change our language, because it almost becomes a self-fulfilling prophecy. If we say that, what do we expect everyone else to think who we're trying to recruit? Can we all raise our right hands and pledge that we'll never say 'lumberyards are not sexy' ever again?" — Wendy Whiteash

On lumber's mobile revolution: "This industry hasn't changed much in the past 50 years, but now's the time that we want to be disruptive rather than the disrupted." — Wendy Whiteash

On being proactive: "We need to be proud of the fact that when that young man comes to work at our lumberyard and is only going to be there for a few years, we kind of want them to move on, but we want to qualify them. We have 18 interns right now in our offices this week, and we're dong that each semester. So we're taking a proactive approach to bringing people in at a very early age." — Brian McCoy

On diversity, and diversifying your approach: "We'll bring together classes of 36 people and it's super diverse — we have millennials, we have presidents, and at the same time, a CDL driver. It's about mixing them together. It's about bringing the best of those together. The richness of conversation that comes out when you have a diverse group of folks like that is phenomenal. You don't want to put al your eggs in the millennial basket at the risk of alienating some of your senior people." — Wendy Whiteash

On community among younger hires: "A bunch of them have young lumber groups. Once they find that it is fun, that these are real down to earth people … there's a lot of beer drinking and partying, but there's also a lot of camaraderie. A lot of industries don't have that [ability to pick up the phone and have someone you can call.]" — Linda Nussbaum

On recruiting outside the box: "We once found someone at a restaurant. He just took care of us over and over again … and now he's risen through the ranks." — Steve Swinney

On indispensable traits: "We can teach people our industry. What we can't teach them is how to treat other people." — Linda Nussbaum

Toward a new shade of green building

Colorado Springs, Colorado — The casual observer of building practices has probably heard of LEED, the green building system from the US Green Building Council. But has he heard of Green Globes, the similar system from the Green Building Initiative?

GBI's Vicki L. Worden intends to use education to build the Green Globes brand, and also promote a market where various green building certification programs are able to compete, innovate and create new solutions.

Worden is executive director of the Green Building Initiative, a nonprofit organization dedicated to accelerating the adoption of building practices that result in energy-efficient, healthier and environmentally sustainable buildings.

"There's room for all of us in the marketplace," Worden said. "We really want to make sure that the market remains open."

Green Globes's penetration is growing. So far it has almost 1,000 buildings certified, 567 of which are federal buildings.

LEED continues to lead the market. "The USGBC has done a great job branding its product and baking it into government programs," she said. At least 18 municipalities have LEED-only incentives.

What's needed, she said, is competition in the marketplace driving innovation and driving creativity.

During her presentation here at the ProDealer Industry Summit, Vicki L. Worden showed a chart indicating declines in all kinds of building certifications. The slipping rate of green certifications — LEED, GBI's Green Globes and others — is credited to fatigue in the market for pursuing certification. She pointed to bureaucracy in some cases, costs in others.

Still a significant market remains. For instance, she pointed to stats showing 20% of all new U.S. commercial real estate construction pursues some form of green practices.

Trends around the industry also include what she called "the deep green movement." Among these is Net Zero Energy Building Certification — a building that is creating as much energy as the building is using. The Living Building Challenge strives for buildings to achieve not only net zero energy, but also net zero water and net zero waste. And another thing: Interest in tall wood buildings are gaining credibility. Wood has a great sustainability story to tell, she said.

"The market is much more sophisticated today than it was 10 years ago," she said.

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